Entering Form 1099-C on an Individual return in Lacerte

For tax year 21 taxpayers through 2025 that received eligible Student Loan Forgiveness may not have to report this as income on their tax return. Per IRS Guidance the creditor should not issue a 1099-C to these individuals. See IRS and Treasury issue guidance for students with discharged student loans and their creditors for more information.

Follow these steps to report a 1099-C Cancelation of Debt for Form 1040:

1. Go to Screen 14.1, SS Benefits, Alimony, Miscellaneous Inc.
2. Scroll down to the Alimony and Other Income section
3. Enter the Cancelation of debt (1099-C) code 6 under the Cancelation of Debt subsection (this amount is typically found on Form 1099-C, box 2. To verify, see the computation below.)

Figuring the amount to use for Cancelation of Debt when viewing the 1099-C:

The total amount of debt immediately prior to foreclosure minus the fair market value of the property from Form 1099-C, box 7.

If less than 0, enter 0.

How to Enter Cancelation of Debt Income for K-1 Activity in Lacerte

Per IRS and K-1 Instructions, cancelation of debt income is to be reported on 1040 Schedule 1 line 8c - however it is treated as passive income, and therefore can offset passive losses, but there is no direct input on Screen 20 to have it reported on line 8c and be included in passive loss limitation calculations

To report the cancelation of debt, it must be entered on Screen 14.1, Miscellaneous Income, under the Cancelation of debt (1099-C) input field. This will report the amount on line 21 of the 1040 with a statement and/or label of Cancelation of Debt.

There is not a way to have this income automatically included in Passive Loss limitation calculations, so the allowable loss of the activity must be overridden.

To override the allowable loss of a K-1 activity:

1. On the Detail tab, navigate to Screen 20, Passthrough K-1's.
2. Select the K-1 Activity that incurred the cancelation of debt.
3. Under Part II - Information About the Partner section, enter the allowable loss as a negative number in the Deductible gain (loss) field.

By using this override, Form 8582 will report the additional loss as allowable, which can be viewed on 8582 Page 2, Worksheet 3, column B.

Related topics

• Generating Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness